Sindh negotiates $12b loans with int'l donors

KARACHI - The Sindh government has been negotiating new loans to the extent of $12 billion with international donors.
The Finance Department of Sindh government disclosed this in its Budget Analysis 2008-09 which has been finalised this week.
Most of these loans are based on commercial lending rates indicating that in future the commercial loans will occupy a major space in the debt of government of Sindh.
Meanwhile, the international donors with whom the Sindh government presently negotiating commercial loans, are International Development Association (IDA) a subsidiary of the World Bank, Asian Development Bank, International Bank for Reconstruction and Development (IBRD), United States Agency for International Development (USAID), International Fund for Agriculture Development (IFAD), and other donors.
The Sindh government has already taken loans from UK, Japan and above mentioned international donors while debt servicing was also under process.
However, the budget analysis for current fiscal pointed out that the total liability/debt of the Sindh government comprising of foreign and domestic loans and general provident fund has reached Rs119.430 billion in current fiscal 2008-09.
Out of this total debt of Rs119.43 billion, Rs69.676 billion are foreign loans which are 58.34 per cent of the total debt of Sindh while there Rs21.291 billion Cash Development Loans obtained from the federal government that amount to 17.83 per cent of the total liability over the Sindh government in this fiscal.
Meanwhile, another Rs28.463 billion liability in terms of accumulated General Provident Fund was also included in the total debt, which Sindh government would pay to the lenders.
According to report, the Sindh government has set target of Rs18.223 billion for debt servicing (principal and interest rate on loan) in this fiscal 08-09 which is 14.05 per cent less than Rs22.127 billion of debt paid during last fiscal 07-08.
The official statistics showed that the amount earmarked for debt servicing in current fiscal 08-09 was much below than the amount paid during the period of financial year 2003-04 to 2006-07.
According to details of amount paid during the period of previous PML-Q led provincial government, Rs 24.487 were paid as debt servicing in FY2003-04, Rs26.072 billion in FY2004-05, Rs19.694 billion in FY2005-06, Rs27.868 billion in Fy2006-07. But, the present PPP led provincial government has earmarked less amount than the average repayment during the previous five years.
The external funding has been obtained mostly through World Bank and Asian Development Bank that constitutes 57 per cent and 42.5 per cent respectively of the total foreign loans while third major source of funding comes through Japan indicating a share of 7.2 per cent.
Meanwhile, a retired official of Sindh government said that the need for foreign loans arises under the scarcity of domestic resources and they are used for the domestic capital formation. He also underlined the need of great care in handling of foreign loans as it was inherent with the foreign exchange risk problems.
He said that prime objective of the government should be to manage its debt at lowest minimum cost and bare minimum risk.
The growth in debt should be matched with the growth in revenues so that servicing of the debt could be made without sacrificing any economic goal, he concluded.